Chapter 13Creditby producing a plastic personalised card. There are three
main kinds of credit card.
1 Bank credit cards (e.g. Mastercard, Visa).Although
these cards are linked to particular banks, an applica-
tion may be made to any bank for its card. The holder
is given a personal credit limit and he can use the card
to buy goods and services or obtain a cash advance
wherever the card is accepted, up to this limit. Traders
involved in the scheme send details of purchases to the
credit card company and are then reimbursed after a
charge of between 1 per cent and 4 per cent has been
deducted. At the end of each month, the holder receives
an account of his spending and details of the minimum
amount that must be paid that month (£5 or 5 per cent,
whichever is the greater). If the holder pays the account
in full by the stipulated date, he is not charged interest
on the credit obtained. (This does not apply to cash
advances, for which a service charge is made.) Alternat-
ively, part-payment may be sent, in which case interest
is charged. Most banks now charge an annual fee for use
of their credit cards.
2 Charge cards (e.g. American Express, Diners’ Club).
These cards work in much the same way as bank credit
cards, allowing the holder to pay for goods and services
at home and abroad by producing his card. The main
differences are:
■the card-holder pays an initial joining fee plus an
annual membership fee;
■there is no pre-set credit limit; and
■the companies insist that the account is paid in full
each month.
3 Retailers’ credit cards (e.g. M & S credit card).Many
chain stores, supermarkets and garages issue their own
credit cards. The period of credit is usually a few weeks
between making the purchases and the presentation of
the account.
The relationship between suppliers, credit or charge
card-issuers and card-holders was examined by the Court
of Appeal in Re Charge Card Services Ltd(1988). A
company operating a charge card service had gone into
liquidation and the question arose whether unpaid sup-
pliers could recover payment direct from card-holders.
The court held that when a card-holder uses his card
to acquire goods and services, this operates as an uncon-
ditional discharge of his obligation to the supplier. An
unpaid supplier can, therefore, take action only against
the card-issuer to recover what he is owed.Shop budget account
This form of credit is operated by many large stores.
The customer decides how much he can afford to pay
each month. He is then allowed a spending limit of,
for example, 12 times the £15 agreed. This allows the
customer to spend up to £180 but never more than this.
As regular repayments are made, he can make more
purchases if he does not exceed the £180 limit. This is
known as ‘revolving credit’ or ‘running account credit’.
Interest is usually charged on the amount owing at the
end of a specified period (usually a month).Trading checks and vouchers
The check trader issues a check or voucher for a specified
amount to his customer. The checks can be spent in any
shop which has already agreed to accept them. The shop
receives payment from the check trader, less a discount.
The customer repays the check trader by small regular
instalments including interest. Check trading is more
common in the north of England. It is a fairly expensive
way to borrow.Credit unions
These are a form of self-help organisation which are par-
ticularly popular in North America and are now catching
on in this country. Credit unions are formed by people
with something in common; they may belong to the
same club or work together. They agree to make regular
savings to form a pool of money. If any of the members
need money unexpectedly, they can borrow from the
pool. They are governed by the Credit Unions Act 1979.Insurance policy loan
This is a loan obtained from an insurance company
based on the security of an insurance policy with a
‘cash-in’ value.Finance company personal loan
Big stores, car dealers, gas and electricity companies
often arrange these loans to finance large purchases.
They are also advertised in local newspapers.387